USD/JPY – Yen Slips as ADP Nonfarm Payrolls Surge

USD/JPY continues to gain ground and has punched above 114 yen in the Wednesday session. In the North American session, USD/JPY is trading at 114.02, up 0.34% on the day. Today’s highlight is the FOMC rate statement, with no change expected in the benchmark interest rate. ADP Nonfarm Employment Change jumped to 235 thousand, easily beating the estimate of 202 thousand. The ISM Manufacturing PMI slowed to 58.7, short of the estimate of 59.5 points. Later in the day, Japan release Monetary Base. On Thursday, Japan publishes consumer confidence and the US releases unemployment claims.

There were no surprises from the Bank of Japan, which released its rate statement on Tuesday. The BoJ maintained its commitment to guide interest rates at -0.10% and 10-year bond yields around zero percent. Despite weak inflation and wage growth, there has not been much pressure on the BoJ to change policy, as the Japanese economy has performed well in 2017. GDP expanded at an annualized 2.5 percent in the second quarter, buoyed by solid numbers from the manufacturing and export sectors. Consumer spending has improved, and retail sales in September improved 2.3%, compared to 1.7% a month earlier. Retail sales have risen for 11 consecutive months, as consumers appear more confident in the economy and have opened their purse strings.

All eyes are on the Federal Reserve, which releases a rate statement later on Wednesday. The Fed is widely expected to maintain the benchmark rate at 1.25%, but the statement could provide clues about future rate policy. The markets have priced in a December rate at 98.5%, which would mark a third rate for 2017. What can we expect in 2018? That depends to a large degree on the new chair of the Fed. Janet Yellen will wind up her 3-year term in February, and she is not expected to be reappointed by President Trump. The front runner is Jerome Powell, who would likely follow Yellen’s current policy of gradual, incremental rates. Another candidate is economist James Taylor, who is a proponent of much higher rates – his “Taylor Rule”, which calls for higher rates when inflation is high or the labor market is at full capacity. Trump is expected to make his choice on Thursday, ahead of his trip to Asia.

USD/JPY Fundamentals

Wednesday (November 1)

8:15 ADP Nonfarm Employment Change. Estimate 202K. Actual 235K

9:45 US Final Manufacturing PMI. Estimate 54.5. Actual 54.6

10:00 US ISM Manufacturing PMI. Estimate 59.5. Actual 58.7

10:00 US Construction Spending. Estimate -0.1%. Actual +0.3%

10:00 US ISM Manufacturing Prices. Estimate 68.0. Actual 68.5

10:30 US Crude Oil Inventories. Estimate -1.5M

All Day – US Total Vehicle Sales. Estimate 17.5M

14:00 US FOMC Statement

14:00 US Federal Funds Rate. Estimate <1.25%

19:50 Japanese Monetary Base. Estimate 15.7%

Thursday (November 2)

1:00 Japanese Consumer Confidence. Estimate 43.6

8:30 US Unemployment Claims. Estimate 235K

*All release times are GMT

*Key events are in bold

USD/JPY for Wednesday, November 1, 2017

USD/JPY November 1 at 10:05 EDT

Open: 113.64 High: 114.23 Low: 113.61 Close: 114.20

USD/JPY Technical

S3

S2

S1

R1

R2

R3

111.53

112.57

113.55

114.49

115.50

116.54

USD/JPY has edged higher in the Asian and European sessions. The pair has reversed directions and post slight losses in North American trade

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Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.

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